"One change I've noticed in the last few days is that there is more concern about this bleeding into the fourth quarter, with the Bank of America comments and housing really having more of a negative impact on the consumer than maybe we've seen so far and I think it's contributing to a more negative tone on the tape," said Alec Young, equity strategist at Standard and Poor's.

"We're seeing the worst performance in the financials and also consumer discretionary … but we're seeing performance and strength in some of the more enterprise and internationally oriented sectors like energy and technology," Young added.

"Ultimately, we've been able to shake off some pretty bad news today," said Stephen Sachs, director of trading at Rydex Investments. "We had a similar pattern yesterday and we're shaping up the same way today."

Bank of America said third-quarter profit fell 32 percent, hurt by the impact of volatile capital and credit markets on its investment banking unit. The second-largest U.S. bank said it took large write-downs for leveraged and other loans and recorded losses from structured products, including mortgage debt.

BofA's lackluster report comes on the heels of poor results reported by No. 1 U.S. bank Citigroup on Monday. Also dragging down the financial sector were weak earnings reports from Washington Mutual and E*Trade Financial , as well as reports that the SEC has initiated an informal investigation of stock sales related to the chief executive of Countrywide Financial .

Despite ongoing credit market turmoil, market strategists remained optimistic on U.S. stocks through the end of the year.

"All in all, things are pretty good but we're in a slowdown and stocks late in the cycle like modest earnings growth and economic growth because it keeps the Fed on the sidelines and in this case it might keep them easing a little bit," said Scott Wren, senior equity strategist at A.G. Edwards.

"If you look at valuations, they are reasonable and inflation and interest rates are low and I don't think the economy will see a recession," said Wren. "In the near term you might see the market trade a little higher ... we still think the bull market has some legs here."

Pfizer reported operating profit of 58 cents per share in the third quarter, 7 percent higher from the same year-ago period and 6 cents higher than analysts' estimates. However, the company recorded a $2.8 billion charge to end its involvement with its poorly-selling Exubera inhaled insulin drug.

Oil resumed its climb toward its latest record high of $89 a barrel as an Iranian oil official said he saw no need to increase output, a day after a Nigerian minister raised the prospect of an early OPEC meeting. Crude futures for November delivery jumped to an intraday record of $89.56 a barrel on Thursday.

Treasury bonds rallied for the fourth day on Thursday as fresh concerns about credit markets and soft economic data revived expectations for a month-end interest rate cut by the Federal Reserve and made investors more risk averse.

The Labor Department's report was far worse than economists expected, and signaled the labor market could be starting to weaken from a downturn in housing and the global credit turmoil.

Adding to concerns about the economy, a survey showed factory activity in the U.S. Mid-Atlantic region grew more weakly than expected in October.

The world's biggest maker of business software, SAP, said third-quarter software sales rose 11 percent or 15 percent at constant currencies to 715 million euros ($1.01 billion), despite a slowdown in the United States.